This discussion reviews and analyzes the consolidated financial condition at September 30, 2009 and 2008, the consolidated results of operations for the three and nine months ended September 30, 2009 and 2008 and other key factors that may affect future performance. This discussion should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements.

Overview

Our Business and Business Segments

We are a leading global provider of investment processing, fund processing, and investment management business outsourcing solutions that help corporations, financial institutions, financial advisors, and affluent families create and manage wealth. Investment processing fees are earned as monthly fees for contracted services including computer processing services, software licenses, and trust operations services, as well as transaction-based fees for providing securities valuation and trade-execution. Fund processing and investment management fees are earned as a percentage of average assets under management or administration. As of September 30, 2009, through our subsidiaries and partnerships in which we have a significant interest, we administer $383.3 billion in mutual fund and pooled assets, manage $156.1 billion in assets, and operate from numerous countries worldwide.

Our reportable business segments are:

Private Banks - provides investment processing and investment management programs to banks and trust institutions worldwide and independent wealth advisers located in the United Kingdom;

Investment Advisors - provides investment management programs to affluent investors through a network of independent registered investment advisors, financial planners and other investment professionals in the United States;

Institutional Investors - provides investment management programs and administrative outsourcing solutions to retirement plan sponsors and not-for-profit organizations worldwide;

Investment Managers - provides investment processing, fund processing and operational outsourcing solutions to investment managers, fund companies and banking institutions located in the United States and to investment managers worldwide of alternative asset classes such as single-manager hedge funds, funds of hedge funds, private equity funds and registered hedge funds;

Investments in New Businesses - provides investment management programs to ultra-high-net-worth families residing in the United States through the SEI Wealth Networkฎ; and

LSV Asset Management - a registered investment advisor that provides investment advisory services to institutions, including pension plans and investment companies.

Financial Results

Revenues, Expenses and Income from Operations by business segment for the three
and nine months ended September 30, 2009 compared to the three and nine months
ended September 30, 2008 were as follows:



                                          Three Months Ended September 30,               Nine Months Ended September 30,
                                                                       Percent                                       Percent
                                         2009             2008         Change           2009            2008         Change
Revenues:
Private Banks                         $    88,561       $  99,882          (11 %)    $   272,154      $ 310,538          (12 %)
Investment Advisors                        43,467          58,846          (26 %)        120,557        181,213          (33 %)
Institutional Investors                    47,458          52,757          (10 %)        129,001        154,746          (17 %)
Investment Managers                        35,208          38,202           (8 %)        101,911        112,002           (9 %)
Investments in New Businesses               1,079           1,811          (40 %)          3,502          5,509          (36 %)
LSV                                        60,160          64,588           (7 %)        149,428        215,509          (31 %)

Total revenues                        $   275,933       $ 316,086          (13 %)    $   776,553      $ 979,517          (21 %)
Expenses:
Private Banks                              79,549          79,545           -            229,108        251,079           (9 %)
Investment Advisors                        28,001          30,775           (9 %)         81,049         93,702          (14 %)
Institutional Investors                    27,369          30,525          (10 %)         74,803         89,993          (17 %)
Investment Managers                        23,047          26,566          (13 %)         68,159         77,542          (12 %)
Investments in New Businesses               3,171           4,023          (21 %)          8,789         12,822          (31 %)
LSV                                        38,928          40,754           (4 %)         97,083        133,950          (28 %)

Total expenses                        $   200,065       $ 212,188           (6 %)    $   558,991      $ 659,088          (15 %)
Income from business segments:
Private Banks                               9,012          20,337          (56 %)         43,046         59,459          (28 %)
Investment Advisors                        15,466          28,071          (45 %)         39,508         87,511          (55 %)
Institutional Investors                    20,089          22,232          (10 %)         54,198         64,753          (16 %)
Investment Managers                        12,161          11,636            5 %          33,752         34,460           (2 %)
Investments in New Businesses              (2,092 )        (2,212 )          5 %          (5,287 )       (7,313 )         28 %
LSV                                        21,232          23,834          (11 %)         52,345         81,559          (36 %)

Total income from business segments   $    75,868       $ 103,898          (27 %)    $   217,562      $ 320,429          (32 %)
Corporate overhead                         (8,897 )       (10,420 )        (15 %)        (27,235 )      (30,876 )        (12 %)
LSV Employee Group (1)                     (1,836 )        (1,820 )          1 %          (5,476 )       (5,460 )         -
Noncontrolling interest reflected
in segments (2)                            30,168          33,291           (9 %)         73,968        114,561          (35 %)

Income from operations                $    95,303       $ 124,949          (24 %)    $   258,819      $ 398,654          (35 %)

(1) Primarily relates to amortization costs of identifiable intangible assets.

(2) Includes $29,829 and $32,741 for the three months ended September 30, 2009 and 2008, respectively, and $73,120 and $112,051 for the nine months ended September 30, 2009 and 2008, respectively, of noncontrolling interest of the other partners of LSV.

Asset Balances

This table presents assets of our clients, or of our clients' customers, for
which we provide management or administrative services. These assets are not
included in our balance sheets because we do not own them.



Asset Balances                                       As of September 30,     Percent
(In millions)                                         2009         2008      Change
Private Banks:
Equity and fixed income programs                   $    12,479   $  14,436       (14 %)
Collective trust fund programs                           1,098       1,028         7 %
Liquidity funds                                          6,524       9,253       (29 %)

Total assets under management                      $    20,101   $  24,717       (19 %)
Client proprietary assets under administration          10,941      12,301       (11 %)

Total assets                                       $    31,042   $  37,018       (16 %)
Investment Advisors:
Equity and fixed income programs                        24,739      27,817       (11 %)
Collective trust fund programs                           2,521       2,471         2 %
Liquidity funds                                          2,243       2,859       (22 %)

Total assets under management                      $    29,503   $  33,147       (11 %)
Institutional Investors:
Equity and fixed income programs                        43,672      39,775        10 %
Collective trust fund programs                             707       1,001       (29 %)
Liquidity funds                                          4,624       3,930        18 %

Total assets under management                      $    49,003   $  44,706        10 %
Investment Managers:
Equity and fixed income programs                             4          10       (60 %)
Collective trust fund programs                           7,075       6,453        10 %
Liquidity funds                                            528         699       (24 %)

Total assets under management                      $     7,607   $   7,162         6 %
Client proprietary assets under administration         216,222     256,553       (16 %)

Total assets                                       $   223,829   $ 263,715       (15 %)
Investments in New Businesses:
Equity and fixed income programs                           473         704       (33 %)
Liquidity funds                                             93         115       (19 %)

Total assets under management                      $       566   $     819       (31 %)
LSV:
Equity and fixed income programs                   $    49,349   $  51,296        (4 %)
Consolidated:
Equity and fixed income programs                       130,716     134,038        (2 %)
Collective trust fund programs                          11,401      10,953         4 %
Liquidity funds                                         14,012      16,856       (17 %)

Total assets under management                      $   156,129   $ 161,847        (4 %)
Client proprietary assets under administration         227,163     268,854       (16 %)

Total assets under management and administration   $   383,292   $ 430,701       (11 %)

Assets under management are total assets of our clients or their customers invested in our equity and fixed-income investment programs, collective trust fund programs, and liquidity funds for which we provide asset management services. Assets under management and administration are total assets of our clients or their

Consolidated Summary

Consolidated revenues decreased $40.2 million, or 13 percent, to $275.9 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. For the nine month period ended September 30, 2009, revenues declined $203.0 million, or 21 percent, to $776.6 million compared to the prior year period. Net income attributable to SEI increased $18.2 million, or 53 percent, to $52.7 million for the three month period and decreased $1.1 million, or one percent, to $128.5 million for the nine month period. Diluted earnings per share for the three month period were $.27 per share as compared to $.18 per share a year ago, an increase of 50 percent. In the nine month period, diluted earnings per share increased to $.67 per share as compared to $.66 per share a year ago, an increase of two percent.

In our opinion, the following items had a significant impact on our financial results for the three and nine month periods ended September 30, 2009 and 2008:

• Although our asset-based revenues continued to be negatively affected by the depressed capital markets compared to prior year levels, the improvement in the capital markets which took hold during the third quarter 2009 served to increase our assets under management when compared to the second quarter 2009. This improvement in our assets under management was the primary driver of increased asset-based revenues on a sequential, quarterly basis. Also, new client activity in our Institutional Investors and Investment Managers segments served to offset some of the year over year decline in revenues from market depreciation.

• The sharp decline of the capital markets during the fourth quarter 2008 and first quarter 2009 had a significant negative impact on the revenue and profits of LSV. Revenues earned by LSV were $149.4 million in the nine months ended September 30, 2009 compared to $215.5 million in the prior year comparable period, a decrease of $66.1 million or 31 percent. Our proportionate share in the earnings of LSV in the nine month period of 2009 was $52.3 million compared to $81.6 million for the same period in 2008, a decrease of $29.2 million or 36 percent.

• Our earnings during the third quarter 2009 include gains of $14.9 million associated with structured investment vehicles (SIV) securities we own. In the nine month period ended September 30, 2009, we incurred net losses of $1.8 million associated with SIV securities. Cumulative net losses from SIV securities as of September 30, 2009 totaled $185.1 million. In September 2009, we purchased the remaining SIV security from the SDIT Prime Obligation Fund. As a result, our obligation under the Capital Support Agreement was canceled. We have now purchased all SIV securities previously held in our money market funds and no longer have any Capital Support Agreements in place (See "Money Market Fund Support" later in this discussion).

• We continued to invest in the Global Wealth Platform and its operational infrastructure. During the nine months ended September 30, 2009, we capitalized $35.1 million for significant enhancements and new functionality for the platform, as compared to $39.5 million in the comparable period of 2008. We will continue to incur significant development costs for these enhancements and upgrades. Our intention is to implement enhancements and upgrades into the platform through a series of releases.

• We recognized an additional $7.6 million of depreciation expense primarily in the Private Banks and Investment Advisors segments during the third quarter 2009 due to a shortening in the useful life of previously capitalized software development costs for some components of the platform. This change was due to the expected abandonment of these components upon the next release of the platform in the fourth quarter 2009. We expect to incur an additional $7.6 million of depreciation expense in the fourth quarter 2009 due to this change in useful life.

• Our operating expenses during the first nine months of 2009 decreased across all of our business segments. A portion of these declines were due to lower direct costs related to reduced revenues. In addition, a significant portion of these declines resulted from initiatives to reduce discretionary expenses. Included in these actions were the elimination of non-strategic activities, process improvements and a reduction in our global workforce, which was undertaken during the first quarter of 2009. We incurred one-time termination costs associated with the workforce reduction of approximately $6.3 million during

• The prevailing economic conditions have extended our sales cycles and slowed the sales of new business.

• Our effective tax rate for the nine months ended September 30, 2009 benefited from the realization of prior unrecognized tax benefits related to the conclusion of federal and state income tax audits during the first quarter of 2009. Our effective tax rate for the third quarter of 2009 was 37.0 percent. We expect our effective tax rate for the remaining quarter of 2009 to continue at or near this level.

• We continued our stock repurchase program during 2009 and purchased approximately 1,955,000 shares at an average price of approximately $16 per share in the nine month period.

Money Market Fund Support

In 2007, we entered into Capital Support Agreements with the SEI Daily Income Trust Prime Obligation Fund (the SDIT PO Fund), the SEI Daily Income Trust Money Market Fund (the SDIT MM Fund), and the SEI Liquid Asset Trust Prime Obligation Fund (SLAT PO Fund) (each a Fund or, together, the Funds). The terms, conditions and subsequent amendments of the Capital Support Agreements are described in our latest Annual Report on Form 10-K in Part II, Item 7 under the caption titled "Money Market Fund Support".

In late 2008, we made our first purchase of a SIV security from the SDIT MM Fund in an effort to eliminate our obligations under the Capital Support Agreements, as amended. During 2009, we purchased all of the remaining SIV securities held by the SLAT PO Fund and SDIT PO Fund. In order to finance the purchases of the SIV securities, we borrowed an aggregate $254.0 million through our credit facility (See Liquidity and Capital Resources section later in this discussion). As a result of these purchases, our obligations to the Funds were eliminated and the Capital Support Agreements were cancelled. The letters of credit posted to collateralize our obligation under the Capital Support Agreements were also cancelled.

The purchase prices paid to the Funds were equal to the amortized cost of the SIV securities on the dates of purchase. The par value and market value of the SIV securities we owned as of September 30, 2009 is as follows:

        Cash purchase price of SIV securities                  $  328,421
        Less: Principal paydowns received                         (12,656 )

        Par value of SIV securities as of September 30, 2009   $  315,765
        Less: Cumulative charge for decline in fair value        (185,093 )

        Market value of SIV securities                         $  130,671

The Company's total net gains (losses) related to the SIV securities and the Capital Support Agreements were $14.9 million and $(1.8) million in the three and nine months periods ended September 30, 2009, respectively. The Company recognized net losses of $40.8 million and $93.9 million from SIV securities and the Capital Support Agreements in the three and nine months periods ended September 30, 2008, respectively.

The market value of the underlying collateral of the SIV securities owned by us has the most significant impact on our exposure to future losses from SIV-related issues. The losses we recognize from the change in market value of the underlying collateral can fluctuate on a daily basis. Based on actual values as of September 30, 2009, the impact of a one percent movement in the value of SIV securities owned by us would be approximately $3.2 million to our earnings.

All outstanding stock options have performance-based vesting provisions that tie the vesting of stock options to our financial performance. Our stock options vest at a rate of 50 percent when a specified diluted earning per share target is achieved, and the remaining 50 percent when a second, higher specified diluted earnings per share target is achieved. Stock options granted prior to 2006 fully vest after seven years from the date of grant. Beginning in 2006, the seven year vesting trigger was eliminated and, as a result, options do not vest due to the passage of time but solely as a result of achievement of the financial vesting targets. Earnings per share targets are calculated exclusive of stock-based compensation expense, net of tax. The diluted earnings per share targets are established at time of grant and are measured annually on December 31. The amount of stock-based compensation expense is based upon our estimates of when we believe the earnings per share targets may be achieved. If our estimate of the attainment of the earnings per share targets proves to be inaccurate, the remaining amount of stock-based compensation expense could be accelerated, spread out over a longer period, or reversed. This may cause volatility in the recognition of stock-based compensation expense in future periods and could materially affect our net income and net income per share. During the nine months ended September 30, 2009, we revised our estimate made as of December 31, 2008 of when certain vesting targets are expected to be achieved. This change in management's estimate resulted in a decrease of $5.3 million in stock-based compensation expense in the nine months ended September 30, 2009.

During the nine months ended September 30, 2009 and 2008, we recognized approximately $10.2 million and $12.9 million, respectively, in stock-based compensation expense, a decrease of $2.7 million. This decrease consisted of the following components:

                                                                      Change in
                                                                     Stock-Based
                                                                     Compensation
                                                                       Expense
Stock-based compensation cost recognized in 2009 for grants
made in December 2008                                               $        5,317
Change in management's estimate of expected vesting of stock
options for grants that were outstanding at September 30,
2009                                                                        (7,765 )
Other items                                                                   (299 )

                                                                    $       (2,747 )

We expect that certain option grants, which do not vest due to the passage of time, will not attain their higher specified diluted earnings per share targets and; therefore, we discontinued the amortization of the unrecognized stock-based compensation cost associated with these grants. These option grants have an unrecognized compensation cost of $21.3 million.

We previously recognized $6.1 million of stock-based compensation expense that may be reversed if certain earnings per share targets are not achieved. We continuously monitor our estimates of when we believe earnings per share targets may or may not be achieved and make adjustments to the amount of stock-based compensation expense as necessary.

Based upon our current view of how many options will vest and when they will vest, we estimate that stock-based compensation expense will be recognized according to the following schedule:

                                             Stock-Based
                                             Compensation
                        Period                 Expense
                        Remainder of 2009   $        3,327
                        2010                        12,269
                        2011                        11,327
                        2012                         6,823
                        2013                         5,083
                        2014                         1,499
                        2015                         1,499

                                            $       41,827

Business Segments

Private Banks



                                              Three Months Ended                    Nine Months Ended
                                         Sep 30,    Sep 30,    Percent        Sep 30,     Sep 30,    Percent
                                           2009       2008     Change          2009        2008      Change
Revenues:
Investment processing and software
servicing fees                           $ 55,885   $ 56,105        -        $ 171,946   $ 170,418         1 %
Asset management, administration &
distribution fees                          22,086     32,387       (32 %)       63,772     106,524       (40 %)
Transaction-based and trade execution
fees                                       10,590     11,390        (7 %)       36,436      33,596         8 %

Total revenues                           $ 88,561   $ 99,882       (11 %)    $ 272,154   $ 310,538       (12 %)

Revenues decreased $11.3 million, or 11 percent, in the three month period and $38.4 million, or 12 percent, in the nine month period ended September 30, 2009 compared to the prior year corresponding period and were primarily affected by:

• Decreased investment management fees from existing clients due to lower assets under management caused by declining capital markets and negative cash flows, particularly from non-U.S. clients; and

• Decreased investment processing fees from existing clients; partially offset by

• Increased non-recurring fees relating to mergers and acquisition activity among SEI clients.

Operating margins decreased to 10 percent as compared to 20 percent in the three month period and 16 percent as compared to 19 percent in the nine month period. Operating income decreased $11.3 million, or 56 percent, in the three month period and $16.4 million, or 28 percent, in the nine month period and was primarily affected by:

• A decrease in revenues;

• Additional amortization expense of $5.0 million related to the shortening in useful life of certain components related to the Global Wealth Platform which are expected to the replaced through the next release of the platform in the fourth quarter 2009; and

• Increased one-time termination costs associated with the workforce reduction in the first quarter; partially offset by

• Decreased direct expenses associated with the lower investment management fees; and

• Decreased salary, incentive-based compensation and other personnel expenses.

Investment Advisors

Revenues decreased $15.4 million, or 26 percent, in the three month period and $60.7 million, or 33 percent, in the nine month period ended September 30, 2009 and were primarily affected by:

• Decreased investment management fees from existing clients due to lower assets under management caused by declining capital markets; and

• Decreased investment management fees from negative net cash flows.

Operating margins decreased to 36 percent, as compared to 48 percent in the three month period and were 33 percent, as compared to 48 percent in the nine month period. Operating income decreased by $12.6 million, or 45 percent, in the three month period, and $48.0 million, or 55 percent, in the nine month period and was primarily affected by:

• A decrease in revenues;

• Increased one-time personnel costs associated with the workforce reduction in the first quarter; and

• Additional amortization expense of $1.9 million related to the shortening in useful life of certain components related to the Global Wealth Platform which are expected to the replaced through the next release of the platform in the fourth quarter 2009; partially offset by

• Decreased direct expenses associated with the lower investment management fees; and

• Decreased salary, incentive-based compensation and other personnel expenses.